Stop Making Cents
Retailers initiate discussion to drop cents-per-gallon fuel metric
OAKBROOK TERRACE, Ill. -- What if one day retailers decided to make 10 cents on every single-serve bottle of soda they sold--10 cents and only 10 cents, every year … for decades?
Sound crazy? Certainly. Especially when the industry is used to making a margin percentage on in-store goods. But for as long as retailers can remember, the industry has measured gasoline and other fuels in terms of cents per gallon (CPG). It's a practice that resonates through internal spreadsheets and into NACS research for its annual State of the Industry report.
In discussions with CSP editors over a series of months, numerous retailers pointed out the flaws of using CPG as a uniform metric, and how its antiquity is a growing stumbling block affecting everything from industry benchmarking to street-level pricing to short- and long-term business projections.
The issue is so controversial that it's the cover story for the September issue of CSP magazine.
"I likened it to cigarettes and how [because of evolving] cigarette programs, the price of cigarettes goes up but the margin per pack is staying the same," said Jeff Miller, president of Miller Oil Co., Norfolk, Va. "There was a huge outcry in that margins were dropping like a rock. Now if a pack of cigarettes was always ['X' cents per pack], it would be different … but that's not the way we do it."
Making the switch in fuel metrics from cents-per-gallon (CPG) to a percentage margin is a mental leap of sorts. Not only are recalculations involved, but so are perceptions of what is satisfactory and what is not. Going from one to the other may mean looking at the exact same figures one day and being completely satisfied, then looking at those same figures the next day and feeling defeated.
Here's a quick look at how the two methods compare.
The CPG metric places an arbitrary, albeit historic number--often 12 to 14--of physical pennies assigned to a gallon of gasoline, making that a financial goal. At the end of the day, retailers hope that what they pay for product and what they eventually sell it for brings in that amount.
Using a percentage to calculate the return a retailer makes on fuel would mean the actual goal in terms of cents per gallon would change, based on what product was actually bought and sold for. If that goal percentage was set at a certain level, actual cents per gallon would move well past the historic 12-to-14 cent range.
Since discussion began in earnest withCSP editors, several prominent retailers have volunteered to voice their opinion on the matter, creating a nexus of thought that may eventually spark change.
Essentially, what these retailers are hoping for is an industry move from CPG to the kind of percentage-based accounting used for just about every other area of the store, formulating the basic core of a retailer's lifeblood: practical, comparable margins.
That percentage margin says a lot about a product. The higher the percentage, the more presumably a retailer would want to sell of it, the more space allotted, the more marketing energy. It may not always be the case, as with fuel obviously, where margins aren't traditionally large, fuel is what draws traffic to the store. And retailers understand that give and take.
What's at stake going forward is an industry more in tune with its own decisions, the day-in, day-out choices it makes that can turn a good year into a stellar one, a make-or-break year into a make year.
For more on this topic, look to the September issue ofCSP magazine.